VZCZCXRO3055
PP RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHMO #5351/01 3131503
ZNR UUUUU ZZH
P 091503Z NOV 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 5175
INFO RUEHXQ/ALL EUROPEAN UNION POST COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RUEHKV/AMEMBASSY KYIV 0182
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 02 MOSCOW 005351 
 
SIPDIS 
 
SIPDIS 
 
STATE PLS PASS USTR SDONNELLY, JGROVES, SMCCOY, PBURKHEAD 
NSC FOR MWARLICK 
DOC FOR JBROUGHER, MEDWARDS, AND JTHOMPSON 
 
E.O. 12958: N/A 
TAGS: ETRD KIPR RS
SUBJECT: STYLE RECORDS--PIONEERING RUSSIAN MUSIC INDUSTRY'S 
FIGHT AGAINST PIRACY 
 
 
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Summary 
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¶1.  (SBU) As high piracy rates and changing business models 
increasingly challenge the traditional way the music industry 
conducts business in Russia, a prominent Russian recording 
company, Style Records, is using market incentives and 
diversification to ensure its future survival.  While taking 
the lead to press for greater GOR enforcement action against 
piracy, the company is simultaneously pursuing civil action 
against pirates in Russian court.  End Summary. 
 
¶2.  (U) Econ M/C and Econoff met on October 30 with Oleg 
Lobov, General Director of Russian recording label Style 
Records (the fourth largest in Russia), to discuss Russian 
music industry trends and IPR issues.  As the chairman of the 
National Federation of Phonogram Producers (NFPP), the local 
sister-organization to the International Federation of 
Phonogram Industries (IFPI), Lobov also provided an overview 
of the Russian recording industry's coordinated anti-piracy 
strategy. 
 
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Diversification Key to Success 
------------------------------- 
 
¶3.  (SBU) Lobov, fresh from a business trip to Europe, was 
the picture of a confident, Western-oriented business 
executive looking to diversify his company.  Acknowledging 
that the music industry is undergoing major Internet-induced 
restructuring, Lobov told Econ M/C that he and his business 
partners plan to invest actively in retail shops, movie 
companies, and Internet portals in the next three years to 
ensure the long-term growth of the company.  Style Records 
has also partnered with Billboard magazine to launch its 
Russian version, and hopes to put together the Billboard 
Music Awards show in Russian in the next year or so. 
 
¶4. (SBU) Lobov said that part of that strategy is not only to 
cater to Russian-speaking consumers in Russia and the CIS 
countries (with expansion plans in Ukraine in particular), 
but also to produce English-language albums by Russian 
artists for the U.S., European, and Japanese markets.  As he 
put it, &Western majors do not need the Russian market to 
survive, but Russian record companies absolutely need the 
Western markets.8  One of the European trip's purposes was 
to promote arguably the hottest singer under the Style 
Records label, Sergey Lazarev who joins the growing rank of 
Russian pop stars who consider English-language songs a 
necessary part of the formula for success. 
 
¶5.  (SBU) One of Style Records, most successful 
diversification projects to date is Nastroyenie, a chain of 
multimedia stores selling legitimate CDs and DVDs.  Launched 
in 2005, Nastroyenie currently has about 100 branches in 
Moscow and 20 in St. Petersburg, with plans to open 22 in 
Samara by the end of the year.  Its business model, according 
to Lobov, is to respond to consumer needs for clean, nice 
shops, relatively low prices, and good customer service.  By 
locating stores at easily accessible places such as in 
shopping centers, near metro stations, and on street corners, 
Nastroyenie/Style Records hopes to lure shoppers away from 
pirate stands by offering a better shopping experience at 
slight higher, but still reasonable, prices.  (N.B. The 
strategy seems to be working.  When Econoff and Econ FSN 
visited one of Nastroyenie,s flagship stores one Monday 
afternoon, they found the place fairly humming with shoppers 
browsing the aisles and trying out video games at game 
consoles.) 
 
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Industry Acting to Shut Down Pirates 
--------------------------------------- 
 
¶6.  (SBU) Lobov told us that there are now fewer pirate shops 
in Moscow due to stepped up law enforcement activities, but 
across Russia, the situation remains problematic with pirated 
music CDs accounting for a high percentage of sales. 
However, as supermarkets and large chain stores increasingly 
start to carry legitimate optical disk products, the 
situation is likely to improve further.  At the same time, 
Internet piracy is a growing concern, especially among 
younger consumers. 
 
MOSCOW 00005351  002 OF 002 
 
 
 
¶7.  (SBU) Lobov said the Russian music industry, through 
NFPP, is attacking piracy in a coordinated three-pronged 
approach: 1) working with the Russian government, rights 
holders, and other governments to affect change in IPR 
legislation and improve law enforcement efforts; 2) changing 
mind sets about piracy, both the pirates, and the 
consumers,, through ad campaigns and industry promotional 
events; and 3) taking civil action against pirates to send 
the message that the industry will no longer tolerate their 
activities. 
 
¶8.  (SBU) In that regard, Lobov said NFPP has been active in 
pressing for needed amendments to Part IV of the Civil Code, 
which will come into force as Russia's overarching civil IPR 
legislation on January 1.  In addition, the leading Russian 
recording studios, including Style Records, Gala Records, 
Universal, and Sony BMG, have jointly sued in arbitrage court 
five Russian pirate websites: jetune.ru; mp3grad.ru; 
mp3search.ru; mp3spy.ru; and mp3plus.ru.  This coordinated 
action follows the April, 2007 court victory by Style Records 
and Gala Records against pirate website delit.ru, as well as 
Style Records, victory against rogue collective management 
society FAIR. 
 
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Comment 
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¶8.  (SBU) Oleg Lobov belongs to a young, modern generation of 
Russian business executives who firmly believe that Russian 
economic interests are tied to international markets. 
Moreover, he is an adherent of the formal, rules-based 
economic activity found in the West and has taken on a 
leadership role in fighting IPR piracy in Russia through 
market incentives and industry-initiated legal actions. 
While law enforcement action is indispensable in the fight 
against IPR violations, it is likely the market-based 
industry initiatives that will have a more lasting effect on 
the piracy problem in Russia.  End Comment. 
BURNS